The Invisible Hand

[elessar78]

With executive pay, rich pull away from rest of America - The Washington Post

Article from the Washington Post about income inequality... specifically I want to discuss the quote below:

Inequality, economists have noted, is an essential part of capitalism. At least in theory, “the invisible hand,” or market system, sets compensation levels to lead workers into pursuits that are the most productive to society. This produces inequality but leads to a more efficient economy.

Economics/Economists say that the "invisible hand" sets market based incentives so that workers find jobs that are valued more and therefore paid more. Is this actually the case? Yet anytime someone starts a thread about career choices, they are resoundingly told to pursue their passions/follow your heart/do what you love. Those two ideas don't seem to match up.

I have other thoughts on it, but I'll keep them broad for now.

[krantcents]

The reason to follow your passion is if you love what you do, you will be good at it. There are very few of the highly compensated executive positions compared to other career positions. Do you really need to earn $50 million per year to be happy? I know I am happy with a lot less. The highly compensated may love their job because of the compensation.

[elessar78]

But it doesn't take into account things like how much living actually costs and can one really enjoy work if one doesn't earn enough to meet the basic needs of life. Social workers for example do their work out of love and don't get paid very much. It would be hard to eek out an existence, it would have to be very humble, on their income. Basic needs like health insurance and retirement savings would really stretch the budget on a humble salary.

You don't need $50M to be happy but it's hard to have peace of mind on $28,000/year.

[maat55]

The invisable hand is nothing more than every individual acting on their own behalf. People gravitate to where there is need.

Central planning distorts this process, leading to inefficiency and lower wealth creation. Some people are not wired for college, yet many waste their time there and add up debt due to centrally planned intrusion.

I've seen stats they say that half the world lives on less than 10 dollars a day. I really do not feel sorry for those living on 28k per year. The poor in this country do not know what real poverty is.

[elessar78]

Good point, Maat.

But the invisible hand doesn't act alone, by that I mean people make decisions of employment on things other than compensation. And the economy isn't as efficient as it could be because of this.

[Frugal]

I agree. There are a lot of factors that affect it.